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October 11, 2006 at 08:00 PM
In last month’s edition of PracticeEdge, we explored how we at AdvisorBenchmarking identify the top advisory firms–by the size of the firm, growth rate, profitability and range of services. In the second part of our best practices report, we continue our examination of the best advisory practices to identify what really differentiates top performers from average firms. We looked at a number of statistics that showed a marked difference between the best and the rest. Our results identified the three largest differentiators that separate leading practices from the rest of the pack: clients per employee, employee compensation and services offered.
Key Strategy #1: Giving Your Clients a High Touch Experience
Our research shows that today’s best firms appear to have the ability to attract more profitable clients and give them more personal attention. In the 1990s, when client portfolios were climbing 12% to 15% a year, advisors didn’t have to add a lot of new clients to achieve profit growth. This environment has changed dramatically in the last few years. During the 2000-2002 bear market, firms of all sizes were awash with new prospective clients. But those firms with greater staff support proved much more adept at replacing their lower-asset clients with larger more profitable ones. Ultimately, these clients generated higher profits, allowing the larger firms to reinvest, add capacity and continue to grow. Having a lower ratio of clients to employees also ensures that each client is getting a high-touch experience, which leads to better client retention.
Key Strategy #2: Take Care of Your Greatest Asset
One of the most expensive line items in your budget is probably your staff, so it’s important to get the most out of this very valuable resource. Not only should you invest in them, you should strive to have the highest quality staff members on board to support your business. Our research reveals that the best firms allocate more of their budget to staff (35% vs. 22%), and that the best firms spend more on each employee–more than twice what average firms pay–$49,000 vs. $22,000. Note that those expenses are those associated only with employees; compensation and benefits for principals are not included. (The average number of employees for the average firm is nine versus 13 for the top firms.) Employing superior employees and compensating them fairly keeps employees happy and improves retention rates, which eliminates the headaches and time associated with finding new staff members.
Key Strategy #3: Offering the Right Services
